Press release: Sustainable Finance – the greatest revolution since the introduction of accounting

”The current incentives of the financial markets need to be shifted. Finance should go to support projects that are sustainable and consider the climate and environmental risks arising in the long term”, says Sirpa Pietikäinen, who was the EPP negotiator on a European Parliament Own Initiative Report to Sustainable Finance. 180 billion euros of investments…

”The current incentives of the financial markets need to be shifted. Finance should go to support projects that are sustainable and consider the climate and environmental risks arising in the long term”, says Sirpa Pietikäinen, who was the EPP negotiator on a European Parliament Own Initiative Report to Sustainable Finance.

180 billion euros of investments in low-carbon and energy efficient technology is needed annually in Europe in order to reach the Paris climate goals, the European Commission has estimated. “Meanwhile, the scale of global financial markets is about 85 trillion dollars. Out of these financial flows, some 30 trillion will need to be disinvested as a result of the looming climate risk”, according to Pietikäinen. “ By correcting the incentives of market actors this amount can but put in better use in support of sustainable innovation and technology.”

Pietikäinen emphasises that inaction costs even more. “Climate and environmental risk represents financial risk. As the climate change proceeds, 4 trillion dollars of global assets under management will become stranded assets by 2100. A 6-degree scenario would threaten to swipe out a third of the global financial markets.”

The European Parliament’s report calls for strengthening ESG indicators in all financial legislation, particularly relating to company reporting, standards for green bonds, credit ratings, benchmarks and the fiduciary duty of investors.

As the EPP negotiator Pietikäinen pushed for taking sustainability indicators onboard into integrated company reporting as well as legislative reviews and impact assessments. For the future EU sustainability taxonomy to be viable and fit-for-purpose, these indicators must be taken as the basis of the new classification system that Commission is preparing.

“The measures proposed by the Parliament will ensure that the transition to a sustainable financial services sector is orderly and transitional while stable in the long term.”

The report also emphasises the need to strengthen the disclosure of the risks and the cost of non-action involved in specific investment products to retail clients and end-beneficiaries. Pietikäinen reminds that ultimately it is about proper management of the assets of individual investors and pension funds.

MEPs also encourage for gradual phasing out of fossil fuel subsidies in the EU. “Globally, 30 trillion dollars of fossil fuel subsidies are distributed every year. These subsidies not only distort the market, by redirecting these assets to energy efficient and low-carbon economy would make reaching Paris climate goals significantly easier”, Pietikäinen states.

According to Pietikäinen climate change is already visible in the daily life and forces to reconsider the foundation of production and consumption. “ Transforming business models and redirecting investments to sustainable purposes is a necessity.”

”Sustainable finance is here to stay. It is becoming the greatest revolution in the financial services since the introduction of double accounting.”

The European Parliament Own Initiative Report was adopted in plenary on the 29th May 2018.